Baylake Bank > Baylake Corp. > Corporate Governance

Baylake Corp.
AUDIT, LEGAL & COMPLIANCE COMMITTEE CHARTER

Adopted by Resolution of the Board of Directors
November 18, 2003

General

There shall be a committee of the Board of Directors of Baylake Bank (the “Company”) to be known as the Audit, Legal & Compliance Committee (the “Committee”).

The role of the Committee is to provide assistance to the Company’s Board of Directors in fulfilling its responsibilities to the Company’s shareholders and the investment community relating to corporate accounting, reporting practices of the Company and the quality and integrity of the financial reports of the Company. The Committee will provide such assistance by overseeing:

• the integrity of the Company’s financial statements,
• the Company’s compliance with legal and regulatory requirements,
• the independent auditor’s qualifications and independence,
• the performance of the company’s internal audit function and independent auditor, and
• the Company’s system of disclosure controls and system of internal controls regarding finance, accounting, legal compliance, and ethics that management and the Board have established

The Committee has the authority to obtain advice and assistance from outside legal, accounting, or other advisors as deemed appropriate to perform its duties and responsibilities and the Company shall provide appropriate funding, as determined by the Committee, for compensation to such outside advisers that the Committee chooses to engage.

Composition and Organization

The Committee shall consist of three or more directors as determined by the Board of Directors, each of whom shall be independent of the management of the Company, and free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Committee. The members of the Committee are to be elected by the Board of Directors and shall serve until their successors are duly elected and qualified. Unless a Chairman is elected by the full Board of Directors, the members of the Committee may designate a Chairman by majority vote of the full Committee membership. A Vice Chairman shall also be appointed to act in the absence of the Chairman.

In determining whether any director is independent, the Board of Directors shall take into consideration the requirements of the principal exchange or system on which any class of the Company’s stock is traded. By way of example, and not limitation, Directors who are affiliates of the Company, or officers or employees of the Company and/or any of its subsidiaries, will not be considered independent.

All members of the Committee must be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. The board shall determine whether at least one member of the Committee qualifies as an “audit committee financial expert” in compliance with the criteria established by the SEC and other relevant regulations, reflecting other comparable experience or background, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities which results in the member’s financial sophistication. The existence of such member, including his or her name and whether or not he or she is independent, shall be disclosed in periodic filings as required by the SEC.

Meetings

The Committee shall hold regular meetings as may be necessary, generally on a monthly basis, and special meetings as may be called by the Chairman of the Committee. Each regularly scheduled meeting shall conclude with an executive session of the Committee absent members of management and on such terms and conditions as the Committee may elect. As part of its job to foster open communication, the Committee should meet periodically with management, the director of the internal auditing function and the independent auditors in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. In addition, the Committee or its Chairman should meet, either in person or via conference call, with the independent auditors and management on a quarterly basis to review the Company’s financial statements.

Relationship with Internal and Independent Auditors

The Company’s internal auditors and independent auditors are to be ultimately accountable to the Board of Directors and the Committee through regular reporting to and review by the Committee and the Board. The Committee and the Board shall be directly responsible for the performance of the independent auditors, including the authority and responsibility to select, evaluate and, where appropriate, replace the internal auditors or independent auditors (or nominate the independent auditors to be proposed for shareholder approval in any proxy statement.)

Responsibilities and Duties

To fulfill its responsibilities and duties, the Committee shall:

Document/Reports/Information Review

• Review the Company’s annual financial statement and any reports or other financial information submitted to the Securities and Exchange Commission or the public, including any certification, report, opinion, or review rendered by the independent auditors.
   

• Review with financial management and the independent auditors the Company’s filings with the Securities and Exchange Commission on Forms 10-K and 10-Q prior to their filing or prior to the release of earnings to the public, including management certifications as required by the Sarbanes-Oxley Act of 2002. Recommend to the Board whether the financial statements should be included in the Annual Report on Form 10-K.

Internal Auditors

• Review the regular internal reports (or summaries thereof) to management prepared by the internal auditing department and management’s response. The internal auditors shall report directly to the Committee and the Committee shall oversee the resolution of disagreements between management and the auditors in the event that they arise.
   

• Review with the Company’s internal auditors and the financial and accounting personnel, the adequacy and effectiveness of the accounting and financial controls of the Company, and elicit recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper.
   

• Review the internal audit function of the Company including the independence and authority of its reporting obligations, the proposed audit schedule for the coming year, and the coordination of such schedule with independent auditors.

Independent Auditors

• Review and recommend to the Board of Directors the selection and compensation of the independent auditors to audit the consolidated financial statements of the Company, considering independence and effectiveness, and approve the fees and other compensation to be paid to the independent auditors. Consider whether the auditors’ performance of permissible non-audit services is compatible with the auditors’ independence.
   

• On an annual basis, obtain from the independent auditors, and review and discuss with the independent auditors, a formal written statement delineating all relationships the auditors have with the Company, consistent with the Sarbanes-Oxley Act, and actively engage in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors. Review the performance of the independent auditors and approve any proposed discharge of the independent auditors when circumstances warrant.
   

• Periodically consult with the independent auditors out of the presence of management and review the independent auditor’s attestation and report on management’s internal control report, the completeness and accuracy of the Company’s financial statements, and the following:
  
  • all critical accounting policies and practices;
  • all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor;
  • material written communications between the independent auditor and management including, but not limited to, the management letter and schedule of unadjusted differences; and
   

• Review and preapprove both audit and non-audit services to be provided by the independent auditor (other than with respect to de minimis exceptions permitted by the Sarbanes-Oxley Act of 2002).

Financial Reporting Processes and Accounting Policies

• In consultation with the independent auditors, review the integrity of the organization’s financial reporting processes, both internal and external. Meet with representatives of the Corporate Governance committee on a periodic basis to discuss any matters of concern arising from the Committee’s quarterly process to assist the CEO and CFO in their Sarbanes-Oxley Act of 2002 Section 302 certifications.
   

• Establish regular and separate reporting to the Committee by management and the independent auditors regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to the appropriateness of such judgments. Consider the independent auditors’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting, setting forth significant reporting issues and judgments made in connection with the preparation of the financial statements.
   

• Review analyses prepared by management and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices as suggested by the independent auditors or management. Review with the independent auditors and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.
   

• Following completion of the annual audit, review separately with each of management and the independent auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. Review any significant disagreement among management and the independent auditors in connection with the preparation of the financial statements.
   

• Establish and maintain procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting, or auditing matters. Establish and maintain procedures for the confidential, anonymous submission by Company employees regarding questionable accounting or auditing.

Ethical and Legal Compliance

• Review, with the Company’s counsel, any legal matter that could have a significant impact on the Company’s financial statements.
   

• Perform any other activities consistent with this Charter, the Company’s bylaws and governing law, as the Committee or the Company Board’s of Directors deems necessary or appropriate.
   

• Discuss policies with respect to risk assessment and risk management. Such discussions should include the Company’s major financial and accounting risk exposures and the steps management has undertaken to control them.
   

• Review and update periodically a Code of Ethical Conduct and ensure that the code is in compliance with all applicable rules and regulations. Review management’s monitoring of compliance with the organization’s Ethical Code, and ensure that management has the proper review system in place to ensure that Company’s financial statements, reports and other financial information disseminated to governmental organizations, and the public satisfy ethical and legal requirements.